This guest article by Mourant Ozannes examines the use of BVI companies as the vehicle of choice for operating private jet aircraft and helicopters.

Simon Lawrenson, a partner in the Hong Kong office of
Mourant Ozannes, examines the use of British Virgin Islands companies as the
corporate vehicle of choice for high net worth individuals and companies in the
acquisition, financing and leasing of corporate and private jet aircraft and
helicopters.

The business-jet market has seen remarkable growth
over the past fifteen years, notwithstanding the significant challenges posed
by the recent global financial crisis. The evolution of fractional ownership
programmes (the period 1995 to 2010 saw delivery of over 1,150 business jets to
fractional operators), the growth of a new class of millionaires and
billionaires in emerging markets such as Russia, the Middle East and more
recently China, and the increasing use of corporate jets by companies for
highspeed business travel, have all contributed to the market's
increasing maturity.

Chinese interest is relatively new, and growing quickly. Recently local media have reported a 45.3 per cent growth in private jet
acquisitions in mainland China for 2011. Last month a high profile joint
venture between NetJets and a consortium of Chinese investors led by private
equity firm Hony Capital and Fung Investments took place.

Additionally, Embraer recently estimated a rise in demand
for private jets up to 11,200 aircraft by 2021, with the Asia Pacific region contributing
between 16-19 per cent of total demand.

With aircraft order books beginning to bounce back and
more liquidity available from private banks and institutional lessors, more and
more purchasers and financiers will be looking to structure acquisitions using
vehicles established in tax efficient, creditor friendly and cost-effective
jurisdictions such as the BVI.

Why
BVI?

The BVI has become a leading jurisdiction for the
establishment of vehicles in connection with the acquisition, financing, sale
and leasing of private and business-jet aircraft. But why BVI? A few suggestions:

•  Investor
confidence: HNWIs, leading aircraft purchasers, lenders, arrangers and lessors
have been utilising BVI companies as part of their acquisition finance structures
for many years. The BVI is widely recognised as providing political, economic
and legislative stability. As a result, market participants have developed a
clear understanding and confidence in a tried and tested jurisdiction.

•  Tax neutrality:
Tax planning and management are important considerations in the establishment and operation of an aircraft holding
company. Except for nominal fees for the optional filings discussed below, there
are no taxes, fees or other charges (including stamp duty) that are payable
(either by direct assessment or withholding) in respect of the execution and delivery
of the aircraft acquisition and financing documents. BVI companies are also
exempt from income and corporate tax, whilst the BVI Government does not levy
capital gains tax on companies incorporated under BVI business companies
legislation.

•  Modern and
flexible legislative framework: The jurisdiction offers commercial parties a
legal regime based upon English corporate and common law principles that is
modern and flexible whilst providing creditor friendly security enforcement procedures.

•  Pricing: The
cost of incorporation and on-going corporate administration of a BVI company,
as well as BVI legal fees are extremely competitive when compared against other
leading financial centres.

Lender
Protection

It is not
uncommon for business-jet purchasers to finance their acquisition by way of a secured lending arrangement. A typical secured
financing would, for instance, contemplate the borrower's (i.e. the BVI company)
obligations being supported by an aircraft mortgage, the usual assignments of
insurances, aircraft/engine maintenance support agreements etc. and potentially a guarantee by
a HNWI or other third party.

Where a
lender has taken security over the shares of the BVI aircraft holding company (typically held by or on behalf of the HNWI or
the corporate owner) then a notation can be entered on the company's register of
shareholders to evidence the existence of such security. Again, this acts to
place third parties examining the register on notice of the existence of such
security. It is also possible, where the parties agree, to file the annotated register with
the Registry of Corporate Affairs, thereby placing on public record the
existence of such security.

The security package, together with the filings and
annotations, combine to create a clear and effective security package that will be
recognisable and enforceable under BVI law – and which is attractive and acceptable to
borrowers and lenders alike.

The
future

As emerging markets in Asia Pacific, Africa and Latin
America continue to grow and with them, the numbers of billionaires and multinationals
increase, business-jets are likely to continue to be much sought after "productivity
tools". With confidence in, and knowledge of, the legal systems of such emerging markets still
developing, purchasers and financiers will wish to structure acquisitions in a
stable, creditor friendly, tax neutral jurisdiction. The BVI is well placed to meet this
continued demand.

This article was originally run in a longer form in Corporate Jet Investor.